Tag Archives: Dan Heath

Cognitive and behavioral biases can contribute to “blind spots” in decision-making, leading to less effective outcomes.
To improve decision outcomes, University of Marburg ’s Philip Meißner, Torsten Wulf of HHL Leipzig Graduate School of Management and HEC’s Olivier Sibony proposed a systematic checklist to identify potential decision derailment based on bias, along with rapid remedies.

Torsten Wulf

They argues that two types of bias contribute to most decisions that lead to undesirable results:

Confirmation bias, the unconscious tendency to believe new information that is consistent with existing beliefs and recent experiences, and to discount contradictory data,

Overconfidence bias, the out-of-awareness likelihood to overestimate one’s skills, insights, and judgment.
This leads to increased risk-taking based on illusory sureness of the decision and ability to mitigate adverse outcomes.

Debiasing techniques such as checklists, can limit the negative effects of biases in decision-making by offering a disciplined, comprehensive analysis of downside risks and by systematically considering multiple viewpoints.

One approach, suggested by Princeton’s DanielKahneman and Gary Klein of McKinsey, is a “premortem.”
Decision makers imagine that the decision has failed and analyze sources and reasons for adverse outcomes, to more thoroughly assess points of failure and possible mitigation strategies.Formal scenario-planning is another way to expose assumptions underlying a plan, as well as a competitor’s priorities and potential strategy.

Massimo Garbuio

Using a variety of debiasing techniques significantly increased the Return on Investment (ROI) in a study by University of Sydney’s Massimo Garbuio and Dan Lovallo and Olivier Sibony of HEC.
As a result, Michael Birshan, Ishaan Nangia, and Felix Wenger of McKinsey, argued that debiasing techniques should be embedded in formal organizational decision-making processes, particularly for high-impact, repetitive decisions.

Michael Birshan

Decision biases may be out of awareness, or unconscious, so it’s more effective to evaluate the process of developing a proposal, rather than focusing only on the content and merits of a proposal.

Decision-making safeguards can be built into standard analysis processes by including questions to expose:

Proposals are considered ready for a decision only when multiple perspectives are available to mitigate confirmation bias and risk analysis is available to reduce overconfidence bias.
Responses to decision checklist questions can be quantified to indicate one of four action steps, according to Daniel Kahneman:

Decide, based on inclusion of robust safeguards against both confirmation bias and overconfidence bias,

Reach out, suggesting the need for gathering additional perspectives, opinions, and perspectives to prevent narrow assumptions to reduce confirmation bias.
The Vanishing-Options Test, proposed by Stanford’s Chip Heath and Dan Heath of Duke University, can generate new ideas by imagining that none of the current proposals are available.

Stress-test, by conducting a pre-mortem or analysis by external devil’s advocate or provocateur to reduce overconfidence risk by.

Reconsider when both more perspectives and risk analysis are required to reduce both overconfidence bias and confirmation bias.
This screening matrix helps reduce related decision-making biases:

Self-interest Bias-To what extent is the proposal motivated by self-interest?

Ishaan Nangia

Recommendation-Assess for over-optimism

Affect Heuristic-How strong is the team’s emotional attachment to a specific proposal?-To what extent were risks and costs fully considered for both preferred and non-preferred options?

Recommendations-Assess for strongly-preferred outcomes
-Reintroduce analysis of all options

Groupthink-How many dissenting opinions were analyzed?-How adequately were all options explored?-Was dissent discouraged?

Felix Wenger

Recommendations-Encourage substantive disagreements as a valuable part of the decision process
-Solicit dissenting views from members of the recommending team, through private meetings

4. Saliency Bias -To what extent are decisions made based on a potentially incomparable, but memorable success? -What about the proposed analogy is comparable to the current situation? -What are relevant examples from less successful companies? What happened in those cases?

Confirmation Bias-What viable alternatives were included with the preferred recommendation?-At what stage in the decision analysis were alternatives discarded?-What efforts were undertaken to seek information to disconfirm the main assumptions and hypotheses?

Recommendation
-Request two additional alternatives to the main recommendation, including analysis of benefits and drawbacks
-Acknowledge unknowns, risks

Availability Bias

Max Bazerman

–If you had more time to gather date, what information would you seek?, asked Harvard’s Max Bazerman
-How can you access similar data now?

Recommendation-Adopt an outside view by using relevant simulations or war games

Disaster Neglect-To what extent is the worst case scenario realistically and sufficiently negative?
-How was the worst case generated?-To what extent does the worst case consider competitors’ likely responses?-What other scenarios could occur?

Loss Aversion-To what extent is the evaluation and decision team risk averse?

Recommendation-Realign incentives to share responsibility for the risk or to reduce risk

Planning Fallacy focuses only on the current case while ignoring similar projects’ history and statistical generalization from related cases.
-To what extent does the analysis rely on “top-down, outside-view” comparisons to similar projects?
-Did the evaluators use a “bottom-up, inside-view” to estimate time required for each step?

Recommendation-Statistically analyze a broad range of similar cases to avoid over-estimates from “top-down, outside-view” approaches and underestimates from “bottom-up, inside-view”
-Differentiate accurate forecasts from ambitious targets

Loss aversion-To what extent are evaluators more concerned with avoiding loss than achieving gains?
– How concerned are evaluators with being held responsible for a failed project?-To what extent has the organization specified acceptable risk levels?

Epstein posits that rational system processing can lead to imagining the event isolated from its broader context that may mitigate its emotional impact.
In this situation, it is easy to focus on distinctive, observable characteristics, and to overvalue these due to their availability rather than their actual future impact.

Relying on the rational system may lead to another error, immune neglect, when people underestimate their likelihood of later reinterpreting future events to reduce negative feelings.

Anna Freud

Epstein refers to this self-care process as the “psychological immune system” that enables recovery from negatively-tinged emotional events.
This is a more positive reinterpretation of Anna Freud’s focus on defense mechanisms.

Commitment, consistency – Draws on people’s desire to appear consistent, and even trustworthy by following through on commitments: “I do what I say I will do…”

Contrast principle – Sales people sell the most expensive item first so related items seem inexpensive by comparison: Real estate transaction fees may appear minimal in contrast to a large investment in a house.

Both memorable messages and persuasive messages take advantage of habitual reactions to typical situations.

These automated and sometimes unconscious processes are a heuristic to help people to deal rapidly and efficiently with routine activities and tasks.
However, “auto-pilot” reactions may lead to being persuaded to act in ways that might not be helpful, such as excessive eating, drinking, spending, or engaging in risky activities.

Jonah Berger

Wharton’sJonah Bergerformulated an acronyn, STEPPS, to describe narrative elements that increase the likelihood that a story, idea, or product will spread like a contagious virus:

Social Currency – Passing along the information makes the sender appear “good” – knowledgeable, helpful or other

Triggers – The message evokes a familiar, frequent situation

Emotion – The story evokes emotion, so will strengthen the emotional between the sender and receiver

Public – Similar to Social Currency, passing the message reflects favorably on the sender